Playing To Win
Strategy for Startups
I get lots of questions about strategy for startups, with many asking whether Playing to Win is appropriate for startups. There is a clear answer to that question, which I will discuss in my 13th Year II Playing to Win/Practitioner Insights (PTW/PI) piece Strategy for Startups: Yes, You Do Have Time for It! You can find all previous PTW/PI here.
The Startup Exemption Argument
The line of argument that I generally get from startups is that they just don’t have the time to ‘do strategy.’ Most of the time the question occurs when they are asking me to invest in their nascent venture (since I do a lot of early stage investing). They must not realize that asking me that question doesn’t bode well for receiving an investment from me! The thinking behind the question is a belief that all you need to do is get a Minimum Viable Product (MVP) out into the market and iterate from there. There is no time to waste on strategy in the startup phase. Just take action!
I totally get the instinct. Startups don’t want to over-intellectualize and in doing so, get to the market later than optimal — and maybe leathally slowly. It feels to startup leaders that the right thing to do is to just get moving.
But as I have argued before, this thinking misconstrues strategy. You can’t not ‘do strategy.’ What you do is your strategy. In fact, if you indeed do have a strategic plan, it may or may not have anything to do with your strategy. In a majority of cases that I have seen over the past 40 years, an organization’s strategic plan has nothing to do with its strategy. It is just some fancy looking binder filled with lofty pronouncements, sitting on some bookshelf, and is divorced significantly from what the organization actually does.
The only relevant question is how you make the decisions that define what you do and therefore represents your strategy. And indeed, big companies tend to perform a lot of analysis during their strategy deliberations and that makes them slow. In fact, it is often so slow that if a startup followed suit, it would expire. But as I have argued, much of that analysis is wasted or misleading and causes big companies to be overly conservative. Unsurprisingly, I don’t recommend lots of data analysis for startups.
But I recommend hard thinking on the logic of their strategy choices. As I have also argued before, people conflate two things — logic and data — when they use the term analysis. The excuse to not do data gathering is that it is time-consuming and expensive. Those are good excuses, especially for a startup. But there is no excuse to not reason logically. Time pressure is not a compelling excuse. If you are in the middle of a building that has just caught fire, running around aimlessly because you have no time to think is not justifiable. You certainly have to think quickly, and think as if your life depends on it, because it does.
The Learning Imperative
The most compelling rationale for thinking carefully and thoroughly about the logic of your decisions is to enable you to learn. The only consistent way to learn to get better is by having an explicit logic for what you are doing.
There is a general belief that if you practice, you will get better. But it is not necessarily the case. If you want to become a better golfer and you choose to work toward that goal by going to a driving range, stepping up to the tee, and hitting 1000 balls, you won’t necessarily get better. You may well just accomplish the grooving of a bad swing and at the end of hitting the 1000 balls with an ill-constructed swing, you will find it hard to change that flawed swing, because it will be ingrained in your muscle memory.
The way to get better is to have a conscious logic for what you are trying to accomplish — a theory. Your theory might be that if you want to hit it long and straight, you must start with a comfortable, balanced stance, then rotate your hips away from the target in the backswing, then swing forward on the same plane as the backswing, and then transfer weight to the front leg at the point of impact, and finally follow through by rotating your torso in the targeted direction.
With that logic in place, you could set up a camera and videotape yourself to judge the extent to which you followed the logic of your theory with your practice shots. If you didn’t, you can get clues about what you did wrong and you can practice trying to correct it. If you correct it but it still doesn’t produce the results you were hoping for, then you could hire a swing coach to help you. And the coach may tell you that your logic is flawed and suggest an alternative theory to help you get better.
If instead you don’t have a theory, you have only a small chance of learning. Of course, you might learn. A blind pig finds an acorn occasionally. But hoping for blind luck is no kind of strategy because as my friend AG Lafley frequently says: hope is not a strategy!
Having a clear logic for your strategic choice enables you to test and reflect productively on the results. You collect data in action as you go forward rather than wasting time collecting data from the past before you start. You can see what didn’t work the way you hoped and adjust your logic and try again. The sequence is: develop logic, test the logic, improve the logic, test the logic, improve the logic, and so on. That is what enables you to improve, and then to improve some more.
Some think that a better approach is to just be clever and get it right the first time: to be a strategy and product genius like Steve Jobs. But even the great Steve Jobs didn’t get it right the first time. In an amusing chapter of his book Sketching User Experiences, user interface design guru Bill Buxton chronicles what he sarcastically calles the “overnight success” of the iPod. Its success and iconic status only became clear after four major product generations that took three years to bring to market. Buxton’s point is that Jobs’ genius with the iPod was not in the perfection of the initial theory, it was in improving the logic until it was a transformative smash hit.
The best are the best because they learn better and faster. They learn by starting with a clear strategy logic and by keeping testing and improving it.
If you are leading, or contemplating investing in a startup, remember that what you do is your strategy. Hence, every startup has a strategy whether it can articulate it or not. Most startup strategies are terrible — hence the 90+% failure rate, the 10-to-1 odds of success.
Shorten those long odds by thinking explicitly through the logic of your strategy. Use the most important question in strategy — what would have to be true — for your strategy to work as you would wish. What would have to be true about the industry you are entering, the customers you intend to serve, the capabilities that you need to possess to win with those customers, the cost position you need to achieve to underpin your target pricing, and the likely reactions of competitors.
It doesn’t have to take long to lay out the logic of your strategy. Collecting data is what takes time. So only collect the amount of data for which you think you have time — and if the answer is no new data, just the data already in your head, that is fine.
But make sure that you write down the logic of your strategy. It doesn’t have to take long. But it is essential to avoid the human proclivity for ex-post rationalization. If you don’t write down your strategy logic, you will have the inclination to convince yourself that things worked out the way you thought, even if they most certainly did not. And if you convince yourself that things worked out the way you expected when they didn’t actually, you won’t learn a thing.
The additional value of writing down what would have to be true in advance is that it will help in the diagnosis of what didn’t go the way you anticipated. Was it that customers acted differently than you thought they would? Or that competitors reacted in a way you didn’t expect? Or you couldn’t hit the cost level on which you counted?
This is one reason why ‘what would have to be true’ is the most valuable question in strategy. Prospectively, it helps you strengthen the logic of your strategy before you put it in action. Retrospectively, it helps you diagnose the ways in which it came up short — and thereby enable you to learn better and faster.
The startup environment is typically one of shortage, not abundance. There is typically a shortage of capital and experience — but also of time. Don’t let the feeling of shortage cause you to worsen your odds of success by failing to fully develop and articulate the logic of your strategy. There is always time to think through and write down your strategy logic — and that is what will improve your odds of success by enabling you to learn faster and better.